According to recent data, more than 50 percent of Americans under the age of 65 obtain health insurance through their employers. The Affordable Care Act (“ACA”), along with other public plans like Medicaid, offer coverage opportunities for those who cannot obtain coverage through their work. Moreover, the ACA includes subsidies to make health insurance more affordable.
While it may seem like there are affordable options for everyone, the unfortunate reality is that there are some families that end up in an awkward position. Specifically, those families experience the so-called “Family Glitch.” They have coverage through an employer-based plan, can’t afford the premiums, yet also don’t qualify for subsidies under the ACA.
Ultimately, the Family Glitch can present financial difficulties for approximately six million Americans. While there are few current options to correct the glitch, it is worthwhile to explore what it is and why legislative action is necessary to address it.
Explaining the “Family Glitch”
The Family Glitch occurs because these six million American families are above certain thresholds for financial assistance. Under the ACA, you can access premium subsidies if:
You don’t have a household income that exceeds 400 percent of the federal poverty level.
The benchmark plan (the second-lowest-cost Silver plan in your area) costs more than a certain percentage of your income. You can find those thresholds by clicking here.
You must have access to an employer-sponsored plan that provides minimum value and that is considered affordable. “Minimum value” here means that the plan must cover at least 60 percent of average costs and include substantial coverage for physician and inpatient care.
The key wrinkle comes from this third requirement. For the year 2020, your employer-coverage must not cost more than 9.78 percent of your household income for just your coverage. For instance, if $125 per month is deducted from your paycheck for health insurance premiums and you make $70,000 per year, a little more than two percent of your income is going to your health care costs. This is below the 9.78 percent threshold.
However, the extra cost to add family members to your employer’s plan is not considered when analyzing whether your plan is “affordable.” While many employers cover a substantial amount of your health care premium, they may not cover your dependents. At the same time, your employer-plan is still considered affordable since your employer is still paying most of your premiums. This is true even if it costs you $1,000 (or more) to add your spouse and dependents to your employee health care plan. In the end, these costs may have to be paid out-of-pocket.
The Family Glitch can be punishing for families. After all, it may seem like you are eligible for at least some financial help, yet you cannot access that help. The Family Glitch was codified in an IRS Rule and there have been several attempts to fix it through legislation. To this point, all of those efforts have failed.
In the meantime, several things can help mitigate the effects of the Family Glitch. If you have children, they may be eligible for the Children’s Health Insurance Program (“CHIP”). You can click here to learn more about potential eligibility. This can be a great option, so make sure that you complete some further due diligence.
Beyond that, you always have the option of foregoing health care coverage that is offered by your employer. You may want to seriously consider purchasing a plan in the Health Insurance marketplace. While you will not be able to obtain a subsidy to help pay for it, you may find that there are more economically attractive options in the marketplace. While it takes some time to sort through the plans, you may find a plan that offers both the coverage you desire and a price that doesn’t break the bank.
Escaping the Family Glitch
Unfortunately, the Family Glitch will continue to exist until there is federal legislation. That being said, there are some patchwork solutions that can offer some financial help when obtaining health care. Whether you have just learned about the Family Glitch or believe that the Family Glitch applies to you, we encourage you to keep all of these facts in mind. Whether you are an employer, or employee looking for solutions to bypass the Family Glitch, give us a call at 717.400.1244.